* Deloitte denies misconduct at Standard Chartered
* U.S. Treasury sends letter of explanation
* Group CFO Meddings cursed Americans in heated 2006 meeting
WASHINGTON/LONDON, Aug 8 (Reuters) - Cowboy local regulator
or the exposer of lax federal bureaucrats?
That's the key question being asked about New York banking
regulator Benjamin Lawsky after his explosive charge that
London's Standard Chartered bank abetted $250 billion
of money-laundering transactions with Iran.
Standard Chartered won help Wednesday from Britain's central
bank governor, who portrayed Lawsky as marching to his own tune,
and marching out of step with federal regulators in Washington.
"One regulator, but not the others, has gone public while the
investigation is still going on," the Bank of England's Mervyn
King said at a news conference in London.
The U.S. Treasury Department, in a letter responding to a
request for clarification from British authorities, said it
takes sanctions violations seriously.
The British bank lost over a quarter of its market value in
24 hours after Lawsky, the head of New York State's Department
of Financial Services, threatened Monday to cancel Standard
Chartered's state banking license, which is critical for dealing
in dollars. Lawsky called Standard Chartered a "rogue
institution" for breaking U.S. sanctions against Iran.
Standard Chartered shares bounced 7.1 percent on Wednesday
to close in London at 13.15 pounds, up from a three-year low of
10.92 hit on Tuesday. They were still down 18 percent since the
regulator's threat, which Chief Executive Peters Sands said was
"disproportionate" and came as a "complete surprise."
Meanwhile, Reuters Breakingviews reported that the U.S.
Federal Reserve has asked Standard Chartered's New York office
to report in every few hours on its liquidity position,
according to people familiar with the situation. The concern is
that the possibility of Standard Chartered losing its New York
license could spook trading counterparties or depositors,
although there is no suggestion that this is happening,
Breakingviews said.
The bank's top executives, some like Sands scrambling back
from summer vacations, worked on a defense strategy. So far, the
executives have contested the regulator's figures and his
interpretation of the law, but they have given little further
detail. The bank says only a tiny proportion of its Iran-related
deals - less than $14 million - was questionable under U.S.
sanctions rules.
Sources told Reuters that federal banking regulators in
Washington, who had been probing Standard Chartered's
Iran-related deals for more than two years, were surprised by
the timing of Lawsky's charges and the stridency of his
language.
Lawsky's Department of Financial Services had come to the
conclusion the case was getting old and that it wanted to move
forward, a person with knowledge of the situation said. The
department told other agencies at a meeting in April that it
planned to move forward with the case, the person said.
Members of Lawsky's office met representatives of Standard
Chartered around May but did not inform the bank it planned to
issue an order against it, the person said.
"This is a case about Iran, money laundering, and national
security," Lawsky said in a statement on Wednesday. "We will
continue to work closely with our law enforcement partners, both
federal and state, in this effort. No bank, big or small,
foreign or domestic, is above the law."
In Washington, Adam Szubin, director of the Treasury
Department's Office of Foreign Assets Control, said in a letter
to British authorities that his office is investigating Standard
Chartered for "potential Iran-related violations as well as a
broader set of potential sanctions violations."
The letter, which was dated Wednesday and obtained by
Reuters, came in response to a British request for clarification
of U.S. sanctions laws. Although much of the letter focused on
so-called U-turn transactions, which are at the center of New
York's allegations, the letter said it was not a comment on
Lawsky's action.
The alleged U-turn transactions refer to money moved for
Iranian clients among banks in the United Kingdom and Middle
East and cleared through Standard Chartered's New York branch,
but which neither started nor ended in Iran.
In London, King drew unfavorable comparisons between the
handling of this case and other U.S. actions against British
banks, such as the investigation of interest rate manipulation
at Barclays PLC.
In the Barclays case, he said, all regulators in Britain and
the United States produced coordinated reports after the
investigation was complete.
"I think all the UK authorities would ask is that the
various regulatory bodies that are investigating the particular
case try to work together and refrain from making too many
public statements until the investigation is completed," King
said.
Standard Chartered's Sands, in his first public comments
since the crisis arose, offered no major new information on the
allegations, which the bank has been reviewing with authorities
for the past two years.
"(We) fundamentally reject the overall picture and believe
there are no grounds for them to take this action," he told
reporters. The threat to cancel the bank's license to operate in
New York would be "wholly disproportionate," he said.
Although Standard Chartered's business is concentrated in
emerging markets, which has helped insulate it from the global
financial crisis, it needs to be able to operate in New York so
it can offer dealings around the world in U.S. dollars.
Also on Wednesday, Deloitte LLP, which was accused
in Lawsky's order of wrongdoing in its role as an outside
consultant to Standard Chartered, denied any misconduct.
Deloitte was hired by Standard Chartered after U.S. authorities
reprimanded the bank for similar lapses on transactions in 2004.
"Deloitte had no knowledge of any alleged misconduct by any
Standard Chartered Bank employees and categorically denies that
it aided in any way any violation of law by the bank," the firm
said in a statement.
Specifically, Deloitte said it "absolutely did not delete"
references to transactions from a report, contrary to an
allegation in Lawsky's order.
CURSING THE AMERICANS
On Monday, Lawsky had reproduced what he said were quotes
from an unidentified Standard Chartered executive director in a
conversation in 2006 that demonstrated the bank's "obvious
contempt" for U.S. banking regulations.
"You f---ing Americans. Who are you to tell us, the rest of
the world, that we're not going to deal with Iranians?" the
quote was rendered in documents released by the regulators.
People familiar with the situation said the bank's group
finance director, Richard Meddings, one of five executive
directors at the time, was the unnamed man.
Ray Ferguson, a bank executive who attended that meeting,
told Reuters that while Meddings had used the expletive in a
heated exchange, he did not, to his recollection, say the second
part of the quote attributed to him about U.S. sanctions.
Meddings did not respond to repeated requests for comment.
Asked for the bank's view on the quote, Sands said: "We
don't believe it's accurate." He defended the ethics of the
bank, which he has run for six years: "I don't think there is
anything wrong with the culture at Standard Chartered,"
Calling the allegations "very damaging", he said he would
address "mistakes" that had been "clearly wrong", but said:
"There were no systematic attempts to circumvent sanctions."
The BoE's King said he did not share the view held by some
that the move in New York was part of a concerted U.S. effort to
undermine London as a financial center, following the Barclays
probe and a U.S. Senate panel report that criticized HSBC
Holding's efforts to police suspect transactions.
One British lawmaker, however, said the affair was part of a
"political onslaught" in the United States against British
banks.
"I think it's a concerted effort that's been organized at
the top of the U.S. government. I think this is Washington
trying to win a commercial battle to have trading from London
shifted to New York," said John Mann, a member of parliament's
finance committee, who also called for a parliamentary inquiry.
